ICSC Foundation Day at Wharton

Blustery March winds blew attendees into Houston Hall on the campus of the University of Pennsylvania for the beginning ICSC’s University of Shopping Centers (USC).  Foundation Day on March 7th marked the beginning of the continuing education program.  ICSC offers scholarships to students to attend on this day and it brought RE students from across the country, but primarily from the northeast.

The USC offers a variety of classes taught by practitioners.  It often leads to a certificate for those who complete 12 courses.  These very practitioner-led courses and the opportunity to mingle with professionals (and other students) from across the country drew this student to Philly (affectionately known here as the “sixth borough”).   The ICSC also treated attendees with a luncheon speech from William Taubman, ICSC Chairman, and the Grossman Lecture from Sam Chandan of Real Capital Analytics.

Through the introductory remarks, the classes and speeches there was a common theme about the current state of the industry — optimism with uncertainty.

Michael Kercheval, President & CEO of ICSC, took the morning train to welcome the students.  He spoke about the USC and his view of the industry.  He spoke about improvement in retail and while 2011 was expected to be an improvement, some surprises were probably still in store.

The USC offered many tracks, but the Debt Workout,Transactions and Repositioning of Distressed Assets, given the times, attracted the most attention. In the afternoon session, James Freel, SVP at Amalgamated Bank, Joseph Hoesley, Vice  Chairman at US Bancorp, Douglas Hercher, EVP & Principal at Cushman Wakefield Sonnenblick Goldman and David Larsen, SVP at US Bank spoke about debt and equity from the perspective of the capital provider.  The panelists reminded the audience that they are in the lending business not the real-estate business.  Nobody on the lender side wants these assets back.  Once it’s on the books . . . it starts to look like cash and you need to alter your strategy.

From an overview to regulation, the panelists spoke about the financial crisis.  Everyone knows there’s a lot of change in the regulations. Banks may not like the new stance, but they need stability.  And a clear, stable regulatory stance from the government is not there.  After the dust settles, some expect the Dodd/Frank bill to cost banks 5-9% of revenue.  This may be enough to push some stressed banks too far.

Moving on to OREOs, (not the milk and cookies kind), the panelists discussed how a non-performing  loan moves to foreclosure and becomes Other Real-Estate Owned (OREO).  The bank usually has five years to engage a broker and sell the property.  Operating Income, losses and changes in appraisals directly affect the income\expense statement and place burden on a bank.  There are alternatives.  The panelists discussed case studies where they worked through ways to avoid balance statement hits and to stabilize loans.

In closing the panelists discussed the CMBS market and the outlook. Mr. Hercher said that Cushman was bullish on RE and that new capital is looking at the industry.  However, (and back to the uncertainty theme) he cautioned that there will be a liquidity hit because of Basel III.  Banks will have to hold more in cash equivalents.

With plenty to think about, attendees moved on to the Hall of Flags for the Grossman Lecture.  Mr. Kercheval took the dais and reminded everyone of the centrality of retail to cities.  It is as true today as it was in ancient times.  With an overview of the late Charles Grossman, he introduced Ms.  Grossman.  She spoke about her late husband’s commitment to education and to ICSC.

Sam Chandan, FRICS spoke about macroeconomic trends facing retail RE, capital markets and consumer spending.  In the same characteristic and breezy style he brings to the stage (including guest lectures at the Zicklin School), Mr. Chandan engaged the audience with offerings from the dismal science.  He reminded us of an improving environment where confidence has improved.  Consumer sentiment has improved as well (especially in the upper brackets), but still has a long way to go.  Real job growth will be required for the economy to stabilize though.  It’s uncertainty in the regulatory environment (even laws that were passed are seeing court challenges) that could be a source of hesitation in creating new jobs.

Many thanks to ICSC, Mssrs .Taubman & Kercheval, and to Ms. Valerie Cammiso for inviting real-estate students and making the the program available.  The day was illuminating and worthwhile and the environment welcoming.

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